Sort your Isa and pension NOW to avoid the tax raid on savers: SIMON LAMBERT

There are only a few days left until the end of the tax year and there isn’t much time left to get your finances in order.

I know we talk about Isas, pensions and taxes at this point every year, but it’s probably never been more important to think about whether you need to take action before April 5. And that’s this Friday.

You should use as much of your Isa allowance as possible, put money into a pension if you need to this tax year, review any savings and investments in standard accounts and consider moving them into the tax-free wrapper of an Isa.

The tax attack on investors

The Chancellor is about to impose the second round of his massive attack on small investors as he cuts capital gains tax and dividend tax exemptions again.

I’m not sure what Jeremy Hunt has against Britain’s ordinary investors, but he has orchestrated the biggest tax attack on them in the last twelve months.

A year ago the annual capital gains tax allowance was £12,300.

On 6 April 2023 it was reduced to £6,000 and from 6 April 2024 it will be halved again to just £3,000.

The last time the capital gains tax deduction was this low was the 1981 through 1982 tax year.

Until recently, hardly any small investors were hit hard by capital gains tax, or even paid any, as hefty profits of more than £12,000 a year were well above that.

With the limit soon to be just £3,000, many more people will have to pay tax on assets left outside an Isa or pension if they sell them to cash in or rebalance their portfolio.

At 10 percent for taxpayers in the basic rate or 20 percent for taxpayers with a higher rate, the levy is not huge, but it does come at the expense of the return on invested money on which in most cases income tax was already levied.

And the Chancellor’s freeze on income tax thresholds, combined with the sneaky addition of capital gains to other income to determine which bracket you fall into, has pushed many more people into paying the higher rate.

A similar picture applies to dividends. A year ago the annual dividend payment was £2,000. In his wisdom, Mr Hunt cut that back to £1,000 at the start of this tax year, and from April 6 it will be just £500.

Again, many more investors will find their dividend income eaten up by taxes.

While Mr Hunt’s reasons for cutting long-standing tax exemptions to the bone are still shrouded in mystery, one thing is clear: they are certainly not tax raids targeting the truly rich.

This will hit small investors much harder than the very wealthy.

High-rollers who pay out dividends, or shares to make capital gains, to lower their tax bills won’t lose as much.

The amounts they raise may even make the difference between a capital gains allowance of £12,300 and a capital gains allowance of £3,000, or a dividend payment of £2,000 and a capital gains allowance of £500, which is relatively small.

For a smaller investor, the impact on his profit or income is proportionately much greater.

The Chancellor should increase allowances in line with inflation – instead he has cut them by 75 per cent.

The tax burden on savers

Fortunately, he did not opt ​​to also halve the £1,000 personal savings allowance, but Mr Hunt has not increased it either, even as inflation skyrocketed and interest rates rose.

And for an unhappy group of people, Mr Hunt is halving the personal savings allowance through tax barriers.

With the frozen higher income tax threshold he has pushed many more people into getting a personal savings allowance of just £500.

And by cutting the 45p tax rate threshold from £150,000 to £125,140 – where it will be lost in total – he has given even more people a zero personal savings allowance.

Use your Isa or pension if you can

However, there is a way to beat this tax attack. Put your money in an Isa and you won’t have to worry about tax on investments or savings, as we explain in full in our essential Isa guide.

Most of us have little to no hope of using up our full Isa allowance of £20,000 a year, although an estimated 800,000 people do.

But if you have savings or investments outside an Isa, consider converting them into a cash or stocks and shares Isa to use up some of your unused portion of the annual Isa allowance. If you act quickly, there is still time to do this on Friday.

You can read more about how to do this for investments with a Bed and Isa here, but remember that most platforms’ deadlines to do this for you have passed, so you may have to sell and sell within an Isa yourself have to buy again.

First check with your investment platform or provider whether the sale will be successful on time and whether you can then get the money into an Isa.

When it comes to pensions, you can now typically pay up to £60,000 a year – a level that most people probably won’t need either. But if you need to reduce your income to avoid high marginal rates due to things like the abolition of child benefit and the 60 per cent tax trap above £100,000, paying some of it this tax year can help. Read our guide from our pensions columnist Steve Webb on how paying into a pension reduces net income.

However, remember that you need to take action on these things before Friday, and that doesn’t mean you should leave it until then. Assume it’s already the last minute

Leaving things later than today means there is no room for error if things don’t go smoothly. And this year, that could cost you a bigger chunk of your small fortune.